REO/SHORT-SALES
A growing number of buyers are entering the market through purchases of REO/Foreclosures or Short-Sales. To better understand these purchasing vehicles we felt it best to fully define each term:

THE SHORT SALE
A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from a Broker Price Opinion BPO or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure.

In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.

Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located. Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second mortgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lienors (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, in some instances the deficiency is sometimes passed on to the debtor as ordinary income through the issuance of a 1099 and thus subject to federal income taxes. Each situation is unique.

The benefit to buyers is the potential to purchase a property at a price significantly under market value. The main pitfall of this type of purchase is the time from the submission of an offer to settlement can be as much as 4 months since the lender has varying levels of approvals needed to finally accept a buyer's offer.

Regarding the impact on one's credit, a short sale does adversely affect a person's credit report, though the negative impact is typically less than a foreclosure. Short sales are a type of settlement. Like all entries except for bankruptcy, short sales remain on a credit report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage 1-3 years after a short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating mortgage balances zero balance after a short sale. However, willfully misrepresenting information on a credit report can constitute libel in some jurisdictions, and lenders may be sued in civil court for engaging in this behavior.

THE FORECLOSURE
Plain and simple, a Foreclosure is the legal process in which a bank or other secured creditor sells or repossesses a parcel of real property after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". The entire foreclosure process can take as long as 6 months and is very costly to the bank so in most instances a short-sale solution is preferred.

Buying a foreclosure is an easier process than the short-sale however, since you are dealing with the owner (the bank) who can do as they wish. Unfortunately each bank conducts their sales differently as some hold offers without counteroffers while other respond as in a normal sale.

In both Short-Sales and Foreclosures the bank has a preferred selling price in mind. Typically 90% to 95% of asking price is desired since this number is already far below market value.

STEPS TO BUYING WILDWOOD FORECLOSURES and SHORT SALES

1/CONTACT ME
Contact me at 609.402.8900 for additional information or use our HOMESEARCH option to select the type of property you are interested in and type "FORECLOSURE/SHORT SALE" in the comments section.

Within 24 hours we will furnish you with a complete listing of all the Foreclosures and Short Sales in not only Wildwood but if you choose all of Cape May and Atlantic Counties.

2/PREPARE FINANCING
One of the most important items that needs to be in place BEFORE you choose to make an offer on a Foreclosure or Short Sale is financing. Keep in mind whether you are buying a bank-owned property or a short-sale the bank is looking for a "slam-dunk"! Cash is king, and when coupled with a quick close can equal a tremendous  opportunity to buy a property at a deep discount. Proof of funds such as a bank statement should accompany all offers. If you will be financing your purchase a pre-qual will need to accompany your offer. The best way to strengthen a financed offer is to have everything in place in order to facilitate a quick closing.

3/ VISIT THE PROPERTY
Typically foreclosures and short sales require the property to be sold "as-is". Under the law no one can require you to waive your right to inspections but the bank will not permit alterations to the purchase price to reflect items in need of repair as they are only concerned with the bottom line.

The best solution is, once you've decided on a property, have your home inspector look at the property before you make your offer. In this instance if you are willing to move forward you can then make your offer and waive your inspection since it's already been done. This would look very attractive to the seller.

4/ MAKE YOUR OFFER
When buying short sales and foreclosures keep in mind you are not the only person looking for the "deal of the century!". I have seen many buyers lose a property for a minute amount that in hindsight they were willing to pay. Make your offer the best and final at the most reasonable terms.


MY EXPERIENCE
I have been involved in numerous short-sale/foreclosure transactions so I can say without a doubt no two are alike. If you are contemplating this type of purchase call me on my cell at 609.402.8900 today for further information.

Joe Zarroli is an Official Agent for REO, Pre-foreclosure, Foreclosure and Short Sales in the Wildwoods and throughout the South Jersey Shore Region.